Courtesy of Christopher I. Miller
Attorneys at Goede, DeBoest & Cross respond to questions about Florida community association law. The firm represents community associations throughout Florida and focuses on condominium and homeowner association law, real estate law, civil litigation, estate planning and commercial transactions.
Q: Our homeowner’s association recently decided to look for a new landscaping company and requested bids from various vendors. One of these companies is owned by one of our directors.
When the potential issue was raised at the board meeting to hire the new landscaper, the director who owns the company said there wasn’t any issue as he would get the best deal for the association. The board proceeded to vote, the director abstained, and his company was awarded the contract for the association. Is this legal?
— J.B., Bonita Springs
A: Yes, this is legal assuming the conflicted director and association follow the proper procedure for disclosing the conflict and awarding the contract.
In an HOA, Section 720.3033(2), Florida Statutes, requires any director of the association that is also a director, officer or finically interested in another entity that desires to do business with the association to comply with Section 617.0832, Florida Statutes, by disclosing the conflict of interest to both the disinterested directors and the members of the association.
These disclosures must be listed on the agenda for the meeting and recorded in the meeting minutes. Additionally, while the conflicted director may make a presentation to the rest of the board, they are not allowed to participate in the vote to hire the company they have an interest in and the vote to hire said company must pass by the affirmative vote of at least two-thirds of the disinterested directors of the association.
Assuming the conflicted entity is hired by the association, at the next regular or special meeting of the members, the association must again disclose the existence of the association’s contract. At the meeting, any member may make a motion to cancel the contract with a majority vote of the members present.
If the members cancel the contract, then the association is only liable for the reasonable value of goods and services provided by the conflicted company up to the time of the cancellation and is not liable for any termination fee, liquated damages or other cancellation penalty.
Assuming your board of directors complied with all of these requirements then everything was likely done legally, and the association may retain the services of the conflicted company.
If you live in a condominium, the statute will require the same processes as the HOA Act, but with a few additional requirements. Section 718.3027, Florida Statutes, expands the conflict to also include a director’s relatives that may have an interest in another corporate entity the association is proposing to do business with.
Additionally, the notice of the meeting to consider the conflicted company must include a copy of all contracts and transactional documents related to the proposed project between the conflicted director’s company and the association.
The Condominium Act also requires that after making a presentation to the rest of the board of directors, the director or their relative with the conflict of interest must leave the meeting during the discussion and vote regarding the company.
The conflicted director must recuse themselves from participating in the vote. Should the condominium vote to not hire the conflicted company, Section 718.3027(3) also requires the director or their relative who has the conflict of interest to notify the board of directors in writing of their intention to not pursue doing business with the association any further or must withdraw from office.
Any officer that fails to make this written disclosure is automatically removed from office by operation of law.
Christopher I. Miller, Esq., is an attorney with the Law Firm Goede, DeBoest & Cross. Visit www.gadclaw.com or to ask questions about your issues for future columns, send your inquiry to: [email protected].
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